State revenues continue in the red, pose additional budget problems

AUGUSTA, Maine — With state revenues $26 million below estimates four months into the budget year, there is a growing concern among forecasters that revenues will have to be re-projected downward next month, making the overall budget shortfall all the more difficult to address.

“We have now seen some of the larger revenue lines below estimates for [at least] three months,” said Rep. Pat Flood, R-Winthrop, co-chairman of the Legislature’s budget-writing Appropriations Committee. “We have to be concerned that that is a trend.”

He said the sales tax was down in October and has been below estimates by more than $13 million so far this budget year. He said the sales tax has been a reflection of how Mainers believe the economy is doing, although he said auto sales continue to be up from a year ago.

“It’s really a mixed revenue report,” Flood said.

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Finance Commissioner Sawin Millett said after four months of the budget year, he is concerned about the sales tax, as well as the corporate income tax, which was down $1.3 million in October and is nearly $14.5 million below estimates for the four-month period.

“We may well see revenues re-projected by the revenue forecasting committee when they meet,” he said. “That will make it all the more difficult to put together a supplemental budget for the current 2013 budget year.”

Millett said the mixed report of the Consensus Economic Forecasting Commission will affect the revenue forecast. Jim Clair, commission chairman, said the panel adjusted its forecast to reflect the actual numbers this year, and that nearly 7,000 new jobs had been added in the state from July 2011 to July 2012.

He said the increased number of jobs indicates the economy is growing slightly better in the current budget year than projected, but the panel does not see any major increase in growth during the next few years.

“We either kept our estimates as they were from last February or reduced them slightly,” Clair said. “We don’t see the economy really moving until after all of this uncertainty in Washington is resolved.”

The panel made the assumption that Congress will avoid the “fiscal cliff” by continuing at least some of the current tax rates and make “selective” cuts in federal spending. Clair said if that does not happen, the nation likely will fall back into recession, and Maine’s economy will suffer.

“We will be facing a very difficult situation if Congress does not act,” said Rep. Peggy Rotundo, D-Lewiston, lead Democrat on the Appropriations Committee. “It will be difficult even if they do act because of the budget issues, and now revenue issues, we have in the state.”

Millett agreed and said he expects some significant additional budgetary needs at the Department of Health and Human Services. He said even if Congress addresses the budget and tax issues nationally, Maine will face some difficult budget decisions.

“There are always supplemental budget needs every year that have to be addressed, but less revenue and greater demands will pose some serious budget issues,” he said.

Complicating the situation is that the solution to the federal budget issues could affect the states in different ways. Tax Policy Associate Commissioner Mike Allen said the state could see wealthy taxpayers shifting their individual tax burdens between years.

“If Congress allows those higher tax rates for upper-income earners to take effect, some may choose to shift income into this year with [its] lower tax rates,” he said.

Allen said that may solve the state’s revenue problem in the current year, but shift the need to the two-year budget that lawmakers will consider in the new session in January.

“And we will have to analyze whatever other tax changes they make and spending decisions to see what impact they have on state revenues,” he said.

Rotundo said the new Legislature will face a lot of decisions based on what Congress does, in addition to dealing with state spending issues.

“These are going to be very difficult budgets we have to put together,” she said.

Millett agreed. He said the proposed two-year budget will go to the Legislature in early January, and a proposed supplemental budget will follow quickly. He said if Congress delays action or only passes stopgap measures, the state will be forced to delay final spending decisions until Congress acts.